With a nod to Carmen Reinhart and Ken Rogoff’s book This Time is Different, Bill Gross of PIMCO, in his most recent commentary, concludes that the new normal looks a lot like the old normal. In other words, economies now are behaving pretty much like they always have when there is a financial crisis and a large buildup of public debt. (See also this excellent commentary on Mr. Gross’s letter from FT Alphaville.) Mr. Gross draws out some investment implications from the following nice graphic:
(click to expand chart)
Essentially, the new normal could consist of the emerging market economies being much more healthy—and more investable—than many overindebted developed economies. Obviously there will be plenty of profitable and outstanding companies within countries in the ring of fire, but Mr. Gross thinks it will also pay to have a more global approach. The world order is changing and your investment strategy will need to be flexible and adaptive (can you spell “tactical asset allocation?”) to keep up.
